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Africa: Global Pirates vs. Tax Justice
AfricaFocus Bulletin
Aug 9, 2012 (120809)
(Reposted from sources cited below)
Editor's Note
A new report from the Tax Justice Network estimates that the
global super-rich have at least $21 trillion in secret tax
havens, the equivalent of the United States and Japanese
economies combined. While these estimates presumably include
funds such as those held by Mitt Romney in "offshore"
accounts in the Cayman Islands, they also include as much as
$944 billion estimated last year to be derived from capital
losses to Africa between 1970 and 2008.
And a report from a High-Level Panel sponsored by the African Union,
Illicit Financial Flows from Africa: Scale and Developmental Challenge, announced recently but
not yet published (see http://tinyurl.com/clvch9b) estimates
that Africa loses as much as $1.5 trillion in illicit
financial flows each year.
All such figures are of course estimates, with secrecy and
incomplete data making more precise calculations impossible.
But there is no doubt about the astounding order of
magnitude of sums hidden from tax authorities of developing
and developed countries alike. The entire process is
facilitated by a "pirate" network dominated by the world's
leading banks and related financial institutions, and by
consistent failure of governments in both rich and poor
countries to enforce anti-money-laundering regulations that
in theory are supposed to prevent such transactions.
In other words, Africa's capital losses, which by far exceed
the international debts on the books of African countries or the
official development assistance provided to Africa, are part of
a more general pattern which pervades the international
financial system.
This AfricaFocus Bulletin contains a press release and a
memo on key issues from the report "The Price of Offshore
Revisited," released late last month. The full report and
other related material is available http://tinyurl.com/9bp73wq and on the websites of the Tax
Justice Network (http://www.taxjustice.net and
http://www.tjn-usa.org).
For additional commentary on this report, see the Democracy
Now interview with author of the study James Henry, video
and transcript at http://www.democracynow.org / direct URL:
http://tinyurl.com/cma8u5q
For previous AfricaFocus Bulletins on related issues, visit
http://www.africafocus.org/debtexp.php Particularly relevant
are the excerpts on Measuring Capital Flight, from the book
Africa's Odious Debt, available at http://www.africafocus.org/docs11/cap1112.php
Announcements
(1) AfricaFocus Bulletin will be taking a break from
publication for the rest of August. Regular publication will
resume in early to mid-September. The AfricaFocus website,
Google+, Facebook, and Twitter feeds will continue to be
updated periodically during this period.
(2) No Easy Victories: African Liberation and American
Activists over a Half Century, 1950-2000, edited by William
Minter, Gail Hovey, and Charles Cobb Jr., is now available
in electronic format on Google Books and on Kindle, in
agreement with Africa World Press. Print copies are also
still available from Africa World Press, on Amazon, and at a
discount on the No Easy Victories website
(http://www.noeasyvictories.org).
The Google Book version is now available for browsing at
http://books.google.com/books?id=j-e2Bz_GCgMC
It should be available later this month at the same link in
a downloadable e-book format from Google at $5.95. It is
also available now at $5.95 on Kindle from Amazon USA or
Amazon UK at http://www.africafocus.org/books/isbn.php?B008QQBYLO
++++++++++++++++++++++end editor's note+++++++++++++++++
The Price of Offshore Revisited: Press Release
19th July 2012
Tax Justice Network
http://taxjustice.blogspot.com / direct URL:
http://tinyurl.com/9bp73wq
Revealed: global super-rich has at least $21 trillion hidden
in secret tax havens
For more information about this report, please contact:
- James S. Henry, TJN Senior Adviser/ Main researcher for
this report, United States. Email: jhenry@sagharbor.com
Office: (001) 631 725 5202 US Mobile: (001) 516 721 1452
- John Christensen, director, Tax Justice Network, United
Kingdom Email: john@taxjustice.net Mobile: (00 44) 7979
868302
- Nick Mathiason, Bureau for Investigative Journalism
Email: nickmathiason@tbij.com Mobile: (00 44) 77 99 348 619
At least $21 trillion of unreported private financial wealth
was owned by wealthy individuals via tax havens at the end
of 2010. This sum is equivalent to the size of the United
States and Japanese economies combined.
There may be as much as $32 trillion of hidden financial
assets held offshore by high net worth individuals (HNWIs),
according to our report The Price of Offshore Revisited,
which is thought to be the most detailed and rigorous study
ever made of financial assets held in offshore financial
centres and secrecy structures.
We consider these numbers to be conservative. This is only
financial wealth and excludes a welter of real estate,
yachts and other non-financial assets owned via offshore
structures. The research for the Tax Justice Network (TJN)
by former McKinsey & Co Chief Economist James Henry comes
amid growing concerns about an enormous and growing gulf
between rich and poor in countries around the globe.
Accompanying this research is another study by TJN, entitled
Inequality: You Don't Know the Half of It, which
demonstrates that all studies of economic inequality to date
have failed to account properly for this missing wealth. It
concludes that inequality is far worse than we think.
Henry draws on data from the World Bank, the IMF, the United
Nations, central banks, the Bank for International
Settlements, and national treasuries, and triangulates his
results against data reflecting demand for reserve currency
and gold, and data on offshore private banking studies by
consulting firms and others. Other main findings of this
wide-ranging research include:
- Our analysis finds that at the end of 2010 the Top 50
private banks alone collectively managed more than $12.1
trillion in cross-border invested assets for private
clients, including their trusts and foundations. This is up
from $5.4 trillion in 2005, representing an average annual
growth rate of more than 16%.
- The three private banks handling the most assets offshore
on behalf of the global super-rich are UBS, Credit Suisse
and Goldman Sachs. The top ten banks alone commanded over
half the top fifty's asset total - an increased share since
2005.
- The number of the global super-rich who have amassed a $21
trillion offshore fortune is fewer than 10 million people.
Of these, less than 100,000 people worldwide own $9.8
trillion of wealth held offshore.
- If this unreported $21-32 trillion, conservatively
estimated, earned a modest rate of return of just 3%, and
that income was taxed at just 30%, this would have generated
income tax revenues of between $190-280 bn - roughly twice
the amount OECD countries spend on all overseas development
assistance around the world. Inheritance, capital gains and
other taxes would boost this figure considerably.
- For our focus subgroup of 139 mostly low-middle income
countries, traditional data shows aggregate external debts
of $4.1 tn at the end of 2010. But take their foreign
reserves and unrecorded offshore private wealth into
account, and the picture reverses: they had aggregate net
debts of minus US$10.1-13.1 tn. In other words, these
countries are big net creditors, not debtors. Unfortunately,
their assets are held by a few wealthy individuals, while
their debts are shouldered by their ordinary people through
their governments.
James S. Henry, TJN Senior Adviser and main researcher for
The Price of Offshore Revisited, said:
This new report focuses our attention on a huge 'black hole'
in the world economy that has never before been measured -
private offshore wealth, and the vast amounts of untaxed
income that it produces. This at a time when governments
around the world are starved for resources, and we are more
conscious than ever of the costs of economic inequality.
Using several independent estimation methods, and the most
comprehensive data set ever assembled, we have been able to
triangulate on the size and growth of this black hole.
Despite taking pains to err on the conservative side, the
results are astonishing.
- First, this hidden offshore sector is large enough to make
a significant difference to all of our conventional measures
of inequality. Since most of missing financial wealth belongs to a tiny
elite, the impact is staggering. For most countries, global
financial inequality is not only much greater than we
suspected, but it has been growing much faster.
- Second, the lost tax revenue implied by our estimates is
huge. It is large enough to make a significant difference to
the finances of many countries, especially developing
countries that are now struggling to replace lost aid
dollars and pay for climate change. Indeed, once we take
these hidden offshore assets and the earnings they produce
into account, many erstwhile 'debtor countries' are in fact
revealed to be wealthy. But the problem is, their wealth is
now offshore, in the hands of their own elites and their
private bankers. Indeed, the developing world as a whole has
been a significant CREDITOR of the developed world for more
than a decade. That means this is really a tax justice
problem, not simply a 'debt' problem.
- Third, it turns out that this offshore sector - which
specializes in tax dodging - is basically designed and
operated, not by shady no-name banks located in sultry
islands, but by the world's largest private banks, law
firms, and accounting firms, headquartered in First World
capitals like London, New York, and Geneva. Our detailed
analysis of these banks shows that the leaders are the very
same ones that have figured so prominently in government
bailouts and other recent financial chicanery.
- Fourth, given all this, it is scandalous that official
institutions like the Bank for International Settlements,
the IMF, the World Bank, the OECD, and the G20, as well as
leading central banks, have devoted so little research to
this sector. This scandal is made worse by the fact that
they already have much of the data needed to estimate this
sector more carefully. For reasons of their own, they have
tolerated the growth of the offshore sector for far too
long, out of sight. It is time for them to live up to their
promises, and work with us on concrete policies to get it
under control.
- From another angle, this study is really good news. The
world has just located a huge pile of financial wealth that
might be called upon to contribute to the solution of our
most pressing global problems. We have an opportunity to
think not only about how to prevent some of the abuses that
have led to it, but also to think about how best to make use
of the untaxed earnings that it generates.
The Price of Offshore Revisited: Key Issues
22 July 2012
Beyond the headline figures, this report for the Tax Justice
Network (TJN) raises a great many urgent issues for global
attention. Here we highlight just four.
1. 'Pirate' Banking
Of the top ten players in global private banking - the
business of helping the world's richest people park their
wealth offshore and conceal it from the authorities and
escape the rule of law - all ten received substantial
injections of government loans and capital during 2008-2012.
In effect, ordinary taxpayers have been subsidising the
world's largest banks to keep them afloat, even as they
actively help wealthy clients slash taxes and commit a host
of other crimes.
Many of the market leaders in this global 'pirate' banking
industry have also been identified in many other forms of
dubious activity, from Libor rigging, to irresponsible
lending, to high-risk trading that led to the financial
crisis, to outright money laundering for criminal gangs.
This report shows that the world's largest banks have, if
anything, been expanding their tax haven-related 'pirate
banking' operations significantly in recent years.
Is there now such a thing as 'Too Big To Be Honest?'
2. Inequality.
The TJN report Inequality: You Don't Know the Half of It
(which accompanies The Price of Offshore Revisited) also
exposes how all conventional measures sharply understate
income and wealth inequality in every country and in every
study.
The tens of trillions of 'missing' financial assets we
identify in this report are on a larger scale than any
estimate hitherto produced, and substantially not counted in
any inequality study.
The impact on inequality implied by our new data is
astonishing. We estimate that fewer than 100,000 people -
that is, 0.001% of the world's population, now control over
30% of the world's financial wealth.
Since the offshore industry experienced take-off in the late
1960s it has been growing relative to the rest of the world
economy through 2010: this also leads us to expect that the
trend of rising inequality has been understated too,
probably in every study.
3. Who are the real debtors? Our research reveals that a
large number of countries, which are traditionally regarded
as debtors, are in fact creditors to the rest of the world.
For our focus group of 139 mostly low-middle income
countries, traditional data shows they had aggregate
external debts of $4.1 trillion at the end of 2010. But once
you take their foreign reserves and the offshore private
holdings of their wealthiest citizens into account, the
picture flips into reverse: these 139 countries have
aggregate net debts of minus US$10.1-13.1 tn.
In other words, these countries are net creditors to the
world, and in a big way. The problem here is that their
assets are held by a small number of wealthy individuals,
while their debts are shouldered by their ordinary people
through their governments.
These countries are painted as having a debt problem. But
the true picture is radically different: they have a hidden
offshore wealth problem. In terms of tackling poverty, it is
hard to imagine a more pressing global issue to address.
4. Turning a blind eye to the missing data
The world's premier multilateral financial institutions have
paid almost no attention to this 'black hole' in the global
economy. It has been left to groups such as TJN to support
the painstaking factual analysis underlying this report.
Yet institutions like the World Bank, the IMF, the US
Federal Reserve, the Bank of England, and the Bank for
International Settlements have ready access not only to the
analytic resources, but also to much of the raw data needed
to more precisely quantify the dimensions of this problem.
Why have they turned a blind eye?
A key priority for the G20 countries must be to require
these global public institutions to devote more serious
study to this topic, to make available more of the private
data on offshore banking that they already have, and to
gather more data.
Conclusions: what needs to be done?
The findings of this TJN report calls into question claims
made by G20 leaders in 2009 in the immediate aftermath of
the financial crisis when they declared that "the era of
banking secrecy is over." This report underscores the need
for policy makers to take their first serious steps to stem
the growth of the global tax haven industry.
There is a long laundry list of measures that need to be
taken now. These include a rapid roll-out of automatic and
multilateral information exchange systems among tax
authorities, county-by-country corporate reporting, and the
deployment of public registries to record the ultimate warmblooded
human beneficiaries of companies, trusts, and
foundations and their like.
Our new report also highlights that the line between
'offshore' and 'onshore' tax dodging is blurred by the rise
of secrecy jurisdictions like Delaware and Nevada and the
City of London, alongside traditional hubs like Switzerland,
Liechtenstein, Singapore and the Bahamas. We must
aggressively deal with secrecy jurisdictions on both sides
of this line.
Finally, given the lead role played by leading banks, law
firms, and accounting firms in 'enabling' all this dubious
activity, authorities must develop far stronger compliance
cultures and penalties for the pinstriped professionals and
leading institutions who treat the facilitation of crime on
a global scale as a legitimate source of profits.
AfricaFocus Bulletin is an independent electronic
publication providing reposted commentary and analysis on
African issues, with a particular focus on U.S. and
international policies. AfricaFocus Bulletin is edited by
William Minter.
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